Flat income, heavy loan buffers bring down Axis Bank net profit in Q1

Mumbai: Axis Bank reported a 4% fall in its June quarter net profit to ₹5,806 crore, below consensus estimates, as provisions rose sharply at the private lender and business income was tepid. Analysts polled by Bloomberg had estimated PAT at ₹6,375.8 crore. The lender had reported profits of ₹6,034.6 crore in the same period last year.

Net interest income or the core income of the bank for the quarter under review was flat at ₹13,560 crores versus ₹13,448 crore in the corresponding quarter last year. Net interest margin was at 3.80% versus 4.05% in the same quarter last year. It contracted nearly 17 basis points sequentially. The bank said that the prudent application of technical parameters for recognising slippages and consequent upgrades impacted reported asset quality parameters. Technical impact is largely restricted to cash credit and overdraft products and one-time settled accounts.

"We have prudently made changes to our technical recognition criteria which has impacted Q1 asset quality numbers across gross slippages, net slippages, credit costs and interest reversals impacting NIMs," said Amitabh Chaudhry, MD, Axis Bank. "We are optimistic as we step into FY26. Our platform will allow us to grow at rates faster this year than the industry and this thesis will continue to play in the medium term." Provisions rose sharply to ₹3,948 crore a more than 93% rise over last year's quarter. Specific loan loss provision for the June quarter stood at ₹3,900 crore.

Asset quality was also disappointing. Gross non-performing asset (GNPA) ratio for the June quarter stood at 1.57% versus 1.54% in the year-ago period. Gross slippages during the quarter rose more than 70% to ₹8,200 crore, compared to ₹4,793 crore in Q1FY25.

Gross slippages for the quarter adjusted for technical impact are ₹5,491 crores, 75% of this came from the unsecured loans while the remaining 25% came from the agriculture sector. Recoveries and upgrades from NPAs during the quarter were ₹2,147 crore. The bank in the quarter wrote off NPAs aggregating ₹2,778 crore.

"Growth was weak with both loans and deposits growing below system growth rates, NIM decline was sharp, and most concerning was the sharp deterioration in asset quality even after accounting for the technical impact," said Pranav Gundlapalle, head of India financials at Bernstein. "A sharp gain in trading income and almost flat operating expense line prevented an even sharper drop in profitability."

Axis Bank's balance sheet grew 9% on year to ₹16 lakh crore. Total deposits grew 9% on year to ₹11 lakh crore, of which current account deposits grew 9%, saving account deposits grew 3% and term deposits grew 12%. Bank's advances grew 8% on year to ₹10.6 lakh crore at the end of the June quarter. Retail loans grew 6% on year and stood at ₹6.2 lakh crore and accounted for 59% of the net advances of the Bank.